Niehaus Liberty selects individual securities on the basis of its assessment of the
prospects for long-term appreciation based on valuation models. Investments are primarily
selected because they offer a discount from the appraised business value. Other important
considerations include dividend income, balance sheet strength, free cash flow, reputation
of management, and volatility. The Niehaus Liberty investment approach is a slow
and deliberate process. Niehaus Liberty will only purchase each individual security
at a price that offers a significant discount, and thus a margin of safety, from
the appraised value of the business as defined by Niehaus Liberty. New clients should
expect to see a period of many weeks, if not months, for their account to become
fully invested after inception. The early phase of Niehaus Liberty's management is
normally characterized by substantial cash balances that will be reduced only as
rapidly as individual security prices become available within the price guidelines
set by Niehaus Liberty in each respective case.
Accounts may also, from time to time, hold significant levels of cash reserves, or
bonds, when Niehaus Liberty is of the opinion that a down-market cycle is probable
and that even undervalued securities will suffer in the general downdraft, and when
there are not securities available offering acceptable discounts from Niehaus Liberty's
appraised business value.
By choosing stocks that Niehaus Liberty believes to be at a discount to appraised
value, Niehaus Liberty seeks to create a margin of safety. Over time, as other investors
recognize the company's value, this margin is expected to decrease and the stock
to appreciate. Securities are generally sold when they reach their fair value as
determined by a fundamental appraisal of company-specific information. The time needed
for value to be recognized in the stock market may be lengthy - 3 to 5 years or longer.
For this reason, Niehaus Liberty generally purchases stocks for the long term. By
buying securities at a discount to their appraised value, Niehaus Liberty believes
risk may be decreased and potential reward may be increased for the patient investor.
